Unprecedented silver demand forcing bullion deals to stop taking orders before market opens

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(Kitco News) - Unprecedented investor interest in silver has continued through the weekend, spilling into the physical market with many bullion dealers unable to keep up with the demand.

After creating massive short-squeezes in stocks like Gamestop, Blackberry and AMC, retail investors mobilized over social media started to focus on the silver market. Reddit's Wall Street Bets has been one of the leaders of the organized mob with its subreddit discussion: 'The biggest short squeeze in the world $SLV Silver $25 to 1000$.'

The mobilization of retail investors in the silver market has created an impressive move for the precious metal. March silver futures prices ended Friday around $27 an ounce, for a 5% gain.

In anticipation of a massive open Sunday evening, retail investors have been busy buying physical bullion over the weekend. Many bullion dealers have had to stop processing online orders because of the unprecedented demand, in the face of price uncertainty.

APMEX, JM Bullion, and SD Bullion are all out of available silver at the moment.

So if anyone wonders if @wallstreetbets (#Reddit) has the ability to impact the #silver market, the dealers running out, & 34 million $SLV shares being added on Friday are the answers that matter. pic.twitter.com/4fE0X2ohoM

— ArcadiaEconomics-Squeeze the Silver Shorts!?????? (@ArcadiaEconomic) January 31, 2021

Although silver has seen some substantial gains this past week and could see higher prices as retail investors continue to pile into the market, more and more analysts are warning investors to be careful of this momentum and volatility.

In an interview with Kitco News on Friday, Peter Hug, global trading director for Kitco Metals, said that while there is ample supply of larger silver investment products, the COVID-19 pandemic has created a shortage of smaller coins and bars, so this resurgence in demand is putting a lot of pressure on the physical market.

He added that fundamentally, he expects silver prices to move higher, investors need to use caution in the current environment.

"I think silver at $27 offers long-term value, but I think investors need to be careful chasing the story," he said.

Other market analysts are also echoing the same sentiment. Ole Hansen, head of commodity strategy at Saxo Bank, said that while silver made some significant gains last week, the move was not outside of the market's average volatility. He added that investors and traders should still keep an eye on major technical levels, with strong resistance around $28 an ounce.

"Silver prices have made a big move, but the price action hasn't broken any major trends yet, so we need to wait and see how much momentum this market has," he said.

While silver has room to run higher in the near-term, Hansen said that he doesn't see enough short positioning to create a major squeeze. Hansen added that he is bullish on silver; however, he said that it will be difficult for the market to maintain gains with gold prices under $1,900 an ounce.